Wednesday, July 22, 2009

Understanding Health Care Deficits and the GOP

To pay attention to the health care debate is to hear about personal politics, to hear about deficits, socialism, and far more in terms of distortions, but too often we forget the basics of deficit numbers. I hope to clarify that a little here.

People are worried about deficit spending into the future, but there is a very hidden context that people don't talk about: demographics. Our population has a group of people who are already retired, they are the "greatest generation." There are a decent sized number of people, but we have always had enough people to pay for them.

The key group are the children of the greatest generation: the baby boomers. They have been the largest generation in US history until recently. They drove the economic growth in the Reagan and Clinton years, and are now almost 50 to just over 60. Unfortunately, they are getting ready to retire or starting their early retirements. When you read huge deficit projections around 2013, that isn't because of some hidden program growth or projected inflation, it is because the baby boomers are starting to retire and pick up their social security and medicare checks.

When 60,000,000 people or 1/5th of the total population and over one third of the working population (and the highest income level of the working population) goes into retirement and starts drawing social security and medicare, it is easy to expect higher deficits considering they won't be paying into the revenue base. In other words, they will go from the base of tax revenues for America to the largest group of government subsidies in American history.

Some may ask about the other generations, but Generation X just isn't large enough to pay enough and the Echo Boomer generation is now the largest generation in American history, but are still in high school and college. It will be another 12 years or so before they are able to fill the void left by the retiring baby boomers in terms of revenue streams. It is this generational difference that caused the recession to start with, but that's another article.

The key point being, the big picture of deficits happens no matter what anyone does in about five years. It stems from the retirement of the baby boomers and until we get the echo boomers or exports to drive the economy, we won't have enough revenues to cover the costs.

This is why it was so important to keep paying down the deficit in 2000 instead of going into tax cuts and massive deficit spending during the GOP controlled Bush Administration years. They failed to address these issues or prepare for them. But now, it is too late. The deficits are inevitable until the baby boomers start to die off and the echo boomers get into their major money making years.

The only hope to address this is to a) get the younger generations involved in paying for it, and b) to find ways to cut costs. The Obama programs are designed to start addressing these issues by getting everyone in the population paying into health care and by finding ways to cut costs.

The GOP likes to talk about the young opting out of health insurance, but there are two major consequences of it: 1) when they get sick, we are still left with the bill; and 2) they cause the costs of health care to become unaffordable as fewer pay into the system.

However, the GOP won't talk about the reasons why these deficits are coming. And now you know why. As one Republican strategist indicated, it is better politically to kill this than to make a sensible compromise. The point: politics as usual dictate GOP politics, instead of focusing on solutions for America's problems.

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